Original drawing by Oberholster Venita
In the summer of 2022, I wrote extensively about cross-border e-commerce from China. Since there have been many developments in this area, I am publishing a series of articles on the initiatives of relevant companies. In the previous articles we looked at Alibaba’s and Bytedance’s/TikTok’s overseas platforms. Today we’ll give you an update on the initiatives of China’s second biggest e-commerce platform, JD.com.
In the previous articles we saw how Bytedance and Alibaba had their struggles with e-commerce, but there probably is no other company that has had as much headwind as JD.com. In October 2022 it even decided to shut down its overseas businesses in Europe and cut back in Southeast Asia, a region where Chinese e-commerce companies have been relatively successful. Profitability had been low despite JD recruiting international logistics and retail talent for their overseas projects.
JD has overseas warehouses in the UK, Germany, the United States, Poland, Australia, Indonesia, Thailand, Malaysia, Vietnam, the United Arab Emirates and The Netherlands.
According to Pandaily, JD started its cross-border business in Indonesia in 2015 with its JD.ID platform, a joint venture with private equity firm Provident Capital Partners. In 2018 and 2019, JD invested in Vietnamese platform Tiki, becoming the main shareholder. In 2019 it created JD Central in Thailand, together with Thai retail and property development conglomerate Central Group.
At the end of November 2022, SMCP reported that JD was looking to sell its stake in JD.ID and was also working on an exit from JD Central. JD planned to reduce its overseas losses while putting more focus on the home market. It was reported to have invested $1.4 billion in Indonesia and Thailand in the past 8 years. JD Central had lost $1 billion between 2017 and 2021.
An employee of JD.ID named the pandemic but also lack of localisation as one of the factors for the platforms lack of success. Many business practices that were copied from China simply didn’t always work in Indonesia. The mistaken thinking that things can simply be copied from China to other countries seems to be a recurring theme among failed cross-border initiatives. It reminds me of the way eBay failed after its launch in China…
[Update: at the end of January 2023, JD announced it would be closing its e-commerce services in Thailand and Indoneasia on March 3rd.]
Scaling down its overseas business seems to be part of a series of decisions JD’s founder Richard Liu has pushed through. Liu, who holds 78% shareholder voting rights even after stepping down as president and CEO in recent years, was especially disappointed with the company’s retail business at a meeting in November. He announced plans to fire 10% of vice presidents and business directors while slashing the salaries of 2.000 senior managers by 20%. The savings were to be partially re-invested in support to lower ranking staff like JD’s army of delivery men, in a move that some people ascribed to the government’s common prosperity policies. Liu also wanted the company to put higher priority on low prices and high quality service again.
LatePost reported (link in Chinese) how an internal meeting with Liu had been full of harsh criticism. He had said executives were ‘overstaffed and forming cliques’ and that he saw ‘incompetence, mismatch between values and the group, low organizational efficiency, and slow business advancement.’ When listening to the strategy meeting he had heard ‘too many fancy stories from the executives, but too little about cost, efficiency, and experience.’
Joybuy bye!
After Google invested $550 million in JD in June 2018, JD launched a shop called Joybuy on the Google Express shopping site. Joybuy offered simple consumer electronics by little known brands, mostly priced under $100. JD later set up standalone websites in English (joybuy.com), Russian (joybuy.ru) and Spanish (joybuy.es).
The site seemingly wasn’t a success: at the end of November 2021 Jiemian (link in Chinese) reported how JD had informed the merchants selling on the platform that it was ‘upgrading’ Joybuy to a cross-border B2B platform, comparable to alibaba.com (Alibaba’s international B2B website).
The new B2B site was finally launched on June 18th 2022. It was said to service ‘more than 110 countries and regions with a focus on Southeast Asian and North American markets.’ Just a few months later, on November 4th, JD announced another ‘business upgrade’ of Joybuy and trading on the site stopped, as reported by Pandaily.
In November, the Joybuy website showed that it was ‘under maintenance’, which in China normally means that a business is shutting down.
JD has opened shop-in-shop stores on Walmart, eBay, Shopee and cooperated with Shopify on drop-shipments (JD Sourcing). The Walmart store, where JD enjoys preferential treatment since Walmart is an investor in JD, is seemingly doing well. According to Yiguan Analysis Group this shows how JD has been unsuccessful in creating traffic for its own websites and depends on others to send visitors to its stores.
The joybuy.com domain now points to global.jd.com. Remarkably enough, a B2C marketplace called joybuyselection.com is still online. Joybuy Selection launched a Facebook page in November 2021. It has 48 followers and stopped posting after January 3rd, 2022. A US website, joy-buy-us.com is also still online. It is unclear if goods are still being sold through these websites.
Ochama
Joybuy isn’t the only JD initiative that went into ‘maintenance mode’. These past months three of JD’s Ochama pick-up stores in The Netherlands were ‘temporarily’ shut down. I have written many articles about Ochama in 2022, but I’ll give a short summary of the initiative.
Ochama was supposed to have been launched in November 2021 but got delayed until January 2022 (with a rather sloppy introduction campaign). It opened 4 self-operated pick-up stores in The Netherlands and also offered home delivery. Ochama was positioned as an omnichannel retailer with high-tech stores where robots gathered your order. As we have seen before with new retail initiatives in China at the end of the last decade, most media initially ate up this news without much of a critical consideration.
The reality was more mundane as the shops basically consisted of conveyor belts and robotic arms putting crates with orders that had been gathered in a central warehouse elsewhere in racks and back on the conveyor belt when a customer came to collect. All of this could not hide that the ordering process, app and website were all far from flawless.
Most importantly, you couldn’t pick up bulky items in the stores and you couldn’t get frozen and fresh products home delivered. As such, Ochama failed to deliver on its proposition: the company’s COO had claimed they were the only European shop where you could pick-up or home deliver a block of cheese and a vacuum cleaner. A combination that simply was impossible to order.
Ochama proved no alternative for home delivery by supermarkets and webstores with larger non-food assortments, while the pick-up stores did not seem to meet any specific consumer need in The Netherlands, where pick-up concepts had already proven to be unpopular.
Ochama’s marketing to the Dutch consumers also left much to be desired, while they mostly seemed to communicate to the Chinese diaspora through their WeChat account. Not only did Chinese people receive lots of special promotions that Ochama never shared through their communication channels toward the Dutch and English speaking consumers, they also did not hesitate to include their new pick-up location partner, Dutch retailer Blokker, in their price comparisons.
In the meantime Ochama was recruiting third-party distribution partners among the Chinese diaspora, presenting a series of 30 Chinese restaurants, tea shops and travel agents as new pick-up locations in May. These businesses were promised extra foot traffic and commissions.
In less than half a year it had become clear that Ochama was changing its business model and instead of opening more self-operated pick-up stores it was trying to expand their distribution network through a model that looked suspiciously much like the community-group buying model (CGB) (link in Dutch) in China. The idea behind this delivery model is that an e-commerce company can use third-party locations where consumers go and collect their orders, with the platform thereby saving costs in the expensive last-mile delivery.
JD is one of the many Chinese internet companies that tried CGB in their home country, with its own brand Jingxi Pinpin and an investment into Xingsheng Youxuan. Both were unsuccessful and were scaled back. It is highly doubtful that this change of strategy can change the fact that the Dutch don’t care much for pick-up concepts…
A lot has happened at Ochama since I last wrote about the concept.
- In April, Ochama changed its Facebook page name from Ochama.NL to Ochama. The page is being managed from The Netherlands and China (where Facebook is blocked unless using a VPN).
- Between May and June, Ochama temporarily launched a Facebook campaign in which it compared its priced to those of established retailers in the market, even discounters like Lidl.
- In July, Ochama launched an ambassador program, offering participants €5 vouchers for every new customer they recruited.
- In August, Ochama announced that it was expanding home delivery (except for fresh and frozen products) to Belgium, Germany and France. It also opened third-party pick-up locations at Chinese diaspora businesses in Paris in September (link in Chinese). Ochama’s Facebook communication shifted to primarily being written in English.
- Ochama used to give 10% of the value of an order as credit to be used as a discount on your next order, an attempt to stimulate repeat purchases. This loyalty scheme was cancelled sometime in the second half of the year. Ochama justified this by claiming it always had low prices anyway.
- In August, Ochama had a sales booth at an Indonesian festival in Rotterdam and in September at the Mid-Autumn Festival celebrations in The Hague, while in October it started accepting WeChat Pay as a payment method. These initiatives show how it was trying to further penetrate into the Chinese and Asian diaspora, pivoting away from positioning itself as a generic retailer.
- in October, 3 out of 4 pick-up shops in The Netherlands were closed ‘for maintenance’. This did not stop the designers of the stores from continuing writing about the concept and the prizes it won them.
- In October, Ochama changed the name of its WeChat account from Ochama荷兰 (Holland) to Ochama欧洲 (Europe).
- In November, the Dutch COO and CMO left the company after just one year of service. The COO mentioned internal reorganisations at JD as a reason and that one ‘sometimes takes a wrong turn’ in a career. Two months later, the Dutch Buying & Merchandising director had also left the company after one year of employment. In the meantime, a store assistant with a few months of experience at Ochama had been promoted to Marketing and Business Developer.
- This poor guy probably had a lot on his plate because complaints on Twitter (31 followers) and Facebook (319 followers) took weeks to receive a response, if they were answered at all. Facebook messages were patchy and shifted between Dutch and English. While the Twitter account of Ochama had not posted since the month of its opening in January, Instagram seemed to be Ochama’s most popular channel, with 1.687 followers at the time of writing.
- Social media campaigns were hard to understand, featuring unclear messages in banners, spelling errors and Chinese shopping festivals like 618 and 8-8 that are unknown to the Dutch.
- In August Ochama increased its e-mail frequency, starting to post almost daily selections of random products to Dutch consumers. Many of these seemed to be targeted at Chinese, prompting Dutch food retail magazine Distrifood to write an opinion piece stating that the company would not survive with e-mails like that.
- The company’s e-mails also often showed errors, like the links and icons in the footer of their order confirmation being an image (including copyright for 2021) and the link to their Facebook page pointing to a test page for most of the year. It currently also features the confusing message below which, besides having an unfriendly tone of voice, seems to be badly timed considering it is included in an order confirmation.
- In December, JD announced that it would start delivering frozen food through its 20 third-party pick-up locations in Paris, using a warehouse in the French capital.
- On December 8th, JD released a press notice announcing it had opened 26 new pick-up locations in Germany, Belgium, France and the Netherlands, bringing the total up to more than 120 (of which 80 in The Netherlands). It also started co-branding two pick-up locations in The Netherlands. No mention was made of the three self-operated stores it had closed.
- In the same press release Ochama claimed to be delivering goods in ‘nearly 10 countries’ now. Another press release identified these as being The Netherlands, Belgium, Luxemburg, Germany, France, Spain, Italy, Hungary and Czech Republic. A droplist on the account page on the website and app does not show Czech Republic as a delivery option though, while it does show Austria.
- Ochama’s German expansion of pick-up locations concerns the border region with The Netherlands. As previously in The Netherlands, many German media outlets fell for the trick in JD’s PR and interpreted the number of pick-up locations it opened as impressive. At the same time some Germany consumers questioned how driving groceries from The Netherlands to Germany was sustainable. Ochama, in the meantime, kept calling its pick-up strategy sustainable on their Facebook page.
- Review sites show many complaints about Ochama with cancelled orders and goods not arriving. Customers complain about not being able to reach customer service and being cut off after being on hold for a long time. Some have even been told they need to download WeChat and contact customer service through that Chinese chat app.
- Complaints by Chinese diaspora on the Chinese social platform Xiaohongshu have turned extremely harsh. One customer recorded a very angry video showing a parking lot. She claimed that it was a pick-up locations she had chosen in the app. Seemingly an Ochama truck had parked there for a specific time window and she had arrived too late. The truck had left.
- Early January, Ochama confirmed to Dutch retail magazine Retailtrends that it no longer focusses on self-operated stores but on third-party pick-up locations. A JD spokesman described this as ‘optimalisation’ that would ‘ímprove the efficiency of the supply chain and result in lower prices for customers’. He also confirmed that since the departure of the Dutch COO, Ochama is being managed from China.
While 120 pick-up locations may sound impressive, there’s a catch. At some locations, goods can only be picked up during a limited number of days (often as little as one) and limited time slots.
When zooming out in the pick-up locator in the app it shows 158 locations, 25 of which show ‘no available pick-up time’. At 20 pick-up locations in Paris goods can only be collected in the afternoon of two days. At 17 locations in German and 7 locations in Belgium goods could only be picked up in the afternoon and/or evening of one specific weekday. Out of 80 available pick-up locations in The Netherlands, 19 could not be chosen because they were meant for internal company/campus use only.
With all the talk about the newly opened pick-up locations the question remains if business is actually improving at Ochama. While we don’t know what sales at the company are like, there are two things that tell us something about the popularity, or lack thereof, of the concept.
First, we can look at the average number of reads of the messages in their WeChat account. Despite the company expanding from one country and 4 pick-up locations to 9 countries and 120+ pick-up locations, and thereby theoretically reaching a much larger group of Chinese diaspora that now seems to be their primary target audience, the average number of WeChat reads per message has remained stable around 1.000. The only times this number is exceeded is during Chinese shopping festivals like 618, 11-11 and Chinese New Year and when free gifts are offered, like when the pick-up locations in Paris opened.
Another growth indicator is the number of invoices that are issued through the Ochama app and website. Since fulfilment is done from their Dutch warehouse and there are no separate country websites we assumed all invoices are created centrally. Therefore, the difference invoice number should give an idea about the number of invoices issued during a period of test orders we made, even though we don’t know the order values.
Note that when ordering fresh and frozen items for pick-up, Ochama splits orders into one for fresh/frozen goods and one for the rest. This also results in 2 separate invoices. As such, the actual number of individual consumer orders will lie somewhere between the figure in the table below and 50% of that number.
We also calculated an average number of orders per pick-up location. Note though that an unknown part of Ochama’s orders are home-delivered, so the actual average per pick-up location will definitely be lower. Considering that not all the mentioned pick-up locations were operational during the full period the figures just give an indication.
The conclusion seems to be that if we use the WeChat reads and invoices as a proxy, the expansion to 9 countries and more than 120 third-party pick-up locations has not yet substantially improved Ochama’s business.
One has to wonder if Ochama is one of the ‘fancy stories’ Richard Liu was referring to in his rant…
In the next articles in this series of updates on cross-border e-commerce from China we will look at Pinduoduo’s Temu and Shein.
